It’s time to sit back, relax and enjoy a little joe …
Welcome to another rousing edition of Black Coffee, your off-beat weekly round-up of what’s been going on in the world of money and personal finance.
Let’s get right to this week’s financial commentary …
In reality there is no such thing as an inflation of prices, relatively to gold. But there is such a thing as a depreciated paper currency.
— Lysander Spooner
Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.
— Sam Ewing
Credits and Debits
Debit: Did you see this? A new Harvard study places the costs of the COVID-19 pandemic at more than $16 trillion — to be specific, that’s the estimated cumulative financial costs of the COVID-19 pandemic related to lost output and health reduction. For those counting at home, that’s 90% of the annual US GDP — and more than twice the monetary outlay for all of the wars the US has fought this century.
Credit: Speaking of US GDP, macroeconomist Alasdair Macleod points out that, “Measured by the CPI, by end-2019 the economy had grown by nearly 22% over nine years ‘in real terms.’ But because the CPI is a heavily-suppressed measure of price inflation, the truth is different. The Chapwood index tells us that GDP has been more than halved from $15.2 trillion to $6.8 trillion, measured in 2010 dollars.” Funny how that works …
Debit: How do we know this? Well … it’s no secret that the US suppresses the CPI in order to disguise the rapidly-falling value of the dollar — and it’s quite effective too. For example, the cumulative price effect of the CPI since 2010 is a 19% increase; now compare that to the Chapwood index inflation reading of 159% over the same period. Of course, this helps explains the recent announcement that Social Security benefits will rise just 1.3% in 2021.
Debit: And for those of you wanting more proof that the Chapwood figures are closer to reality, Macleod points out that the sharp increase in the USD M3 money supply since 2010 has “diluted the dollar by increasing 109% over the period.” See for yourself, folks — the red line, representing CPI, barely increases despite the sharply rising green line, representing the broad money supply:
Credit: In fact, inflation has devalued the US dollar so badly since its anchor to gold was broken in 1971 that the majority of Americans today have absolutely no idea that there was actually a time when the loose change in our pockets was usually enough to buy some pretty good stuff — especially if you were a kid …
Debit: Of course, monetary inflation results whenever a nation spends significantly more than it earns. If the financial behavior becomes chronic, then its currency eventually becomes so debauched that the public will lose confidence in it. The US has been running deficits for more than 40 years — and it ended the 2020 fiscal year (FY) with its largest one ever. And, no, even the world’s premier reserve currency isn’t immune to lost confidence.
Hyperinflation = devaluation of fiat currency caused by increasing the supply of the currency in excess of the marginal increase in wealth output to back the additional currency. This will be evidenced by rising prices, which is already being seen in base metals, gold and silver. https://t.co/esAzjQZHXV
Dave Kranzler (@InvResDynamics) October 20, 2020
Debit: Unfortunately, Macleod points out that these ever-increasing deficits are evidence that “hyperinflation is already well-entrenched for the US dollar and all other fiat currencies, in that their decline in purchasing power is driving the fall in the real value of taxation receipts. At the same time, it’s realized that raising taxes would be harmful to production, consumption and, therefore, government finances.” Uh huh. Rock … meet hard place. This guy certainly knows:
Debit: Then again, something’s got to give — at least eventually. That’s because the FY 2020 interest expense is approximately $560 billion. But even more alarming is this: The combination of both interest and entitlement expenses equaled 97% of the roughly $3 trillion in tax receipts this year. Remember that the next time somebody says the federal government has a revenue problem — what it really has is a spending problem.
Credit: Frankly, with all this macroeconomic turmoil, it’s really no wonder that last week the IMF’s managing director, Kristalina Georgieva, gave a thinly disguised warning of what’s around the corner, saying in order to address low productivity, slow growth, and wealth inequality, the world needs a “new Bretton Woods moment.” In other words: a new monetary system — and one that is almost certainly based on gold.
Credit: Until a new system is in place, economist Pavel Mordesov warns that, the Fed’s ability to “mitigate another disaster is precarious. And with rates being artificially manipulated to 0%, the government can borrow more than ever before — but we’ll have to eventually pay through inflation or taxation. The question is: How much longer will this go on?” Probably not very. The good news is for those who are prepared, the query is moot.
Yellen: “I Don’t See a Financial Crisis Occurring ‘In Our Lifetimes'” pic.twitter.com/4ckgfdpmWq
Stalingrad & Poorski (@Stalingrad_Poor) October 20, 2020
By the Numbers
Thanks to stimulus spending, both the FY 2020 deficit and the US National Debt skyrocketed to all-time highs. Here is the breathtaking scope that stimulus — and its effect on the National Debt:
1790 Year that President Thomas Jefferson agreed to assume the individual states’ war debt, thereby putting the US federal government into debt for the first time.
$25,000,000 Debt the US federal government assumed from the states in 1790. In exchange, Jefferson got the US capital moved from Philadelphia to Washington, DC.
1835 The last year that the US had no federal debt.
$22,800,000,000,000 The US federal debt at the end of 2019, excluding non-funded liabilities.
$27,117,000,000,000 The current US federal debt, excluding non-funded liabilities.
$3,100,000,000,000 The US federal deficit for the FY 2020.
$2,600,000,000,000 Total COVID stimulus spending in FY 2020.
$900,000,000,000 COVID stimulus tax relief in FY 2020.
$2,000,000,000,000 Estimated cost of the next COVID stimulus proposal.
$155,000,000,000,000 Current estimated US federal debt including unfunded liabilities.
Sources: Forbes; US Debt Clock
Last Week’s Poll Results
How much cash do you currently have in your wallet?
- $21 – $50 (27%)
- More than $100 (27%)
- $1 – $20 (21%)
- $51 – $100 (14%)
- None (10%)
More than 1900 Len Penzo dot Com readers responded to last week’s question and it turns out that roughly 2 in 5 of them had more than $50 in their wallets — which means the remainder were married and/or have teenagers living with them.
If you have a question you’d like me to ask the readers here, send it to me at Len@LenPenzo.com — and be sure to put “Question of the Week” in the subject line.
The Question of the Week
[poll id="343"]
Useless News: At Your Service
I had just pulled into a parking spot at the home improvement store when smoke and flames began pouring from under the hood of my car. Frantic, I bolted into the store and ran up to the first clerk I saw. As luck would have it, he was standing behind the customer service counter. “Please help!” I gasped. “My car’s on fire! I need a fire extinguisher!”
Without even looking up, the guy replied, “Aisle 12.”
(h/t: Clyde J.)
Other Useless News
Here are the top five articles viewed by my 34,778 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):
- 14 Unconventional Money Moves That Are Smarter Than You Think
- 100 Famous Quotes About Debt
- 10 Unique Halloween Treats Kids Love
- Here’s an Easy Way to Save $1500 Per Year — By Doing the Laundry!
- 6 Career Killers — and How to Avoid Them
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(The Best of) Letters, I Get Letters
Every week I feature the most interesting question or comment assuming I get one, that is. And folks who are lucky enough to have the only question in the mailbag get their letter highlighted here whether it’s interesting or not! You can reach out to me at: Len@LenPenzo.com
Here’s a rather odd message I received in my inbox this week from Joriss:
Your blog is a total squander of time!
Let me guess: You’re a professional fortune cookie writer, aren’t you?
If you enjoyed this, please forward it to your friends and family. I’m Len Penzo and I approved this message.
Photo Credit: public domain
Hi Len,
I wish my rent was $27 a month! Over a whole year that is less than 10% of the avg. income in 1938. Really amazing. A new money system can’t get here fast enough!
Have a great weekend!
Sara
Well … it’s about 19% Sara, but your point stands. That’s still a smaller percentage than many people pay today for their rent (or mortgage/property taxes/insurance).
Geez. That crazy diver only got a 6 from the East German judge. LOL
I know, right? By the way, that particular high dive record (requirement: minimum one somersault, diver must leave pool on own power) still stands today.
The powers that be are giving us more and more hints that a change is coming, aren’t they? Davos 2021 theme is “The Great Reset” and now IMF talking about a new Bretton Woods.
Nobody seems to be listening though.
Yep. We won’t be able to say they didn’t warn us.
As long as the dollar is king, we’re a long ways off from inflation, years if not decades. And real estate is the only true inflation protection. The rest is B.S.
I think a better way to put is that as long as the public buys the current con game it doesn’t matter.
The Chapwood Index (and more than 20 years of meticulously tracking my own expenses) disagree with your inflation assessment, George.
As for real estate being the only true inflation protection, that is patently false. That role is best undertaken by precious metals.
My theory is a year from now the USD will be rapidly inflating because the virus scare will be over and there will be a massive supply shock. What do you think, Len?
I think it is a cogent theory, Sam.
One thing which has mostly doubled in price recently is building materials if you can get them! 2 x 4″ for framing that were $3. at Home Depot in January are now $6. Other supplies have seen similar stunning increases. First of all the supply chain was disrupted by the lock down. Now with so many wealthy people fleeing the Democrat run failing cities to escape the violence, riots, the repeat career criminals released same day with no bail and no reason to stop committing fresh crimes, arson, squeegee men, the homeless invasion of the “nice” neighborhoods (For all of which they voted Democrat to obtain.) and buying in the suburbs, the competition for building materials is fierce. In our small town the invasion (It’s a friendly invasion and they are nice, upright taxpayers who will again vote Democrat and wonder at the deterioration of their new surroundings!) of well heeled people fleeing New York, buying modest, well kept houses and knocking them down to build huge new houses on the lots is soaking up all the available building materials. It has become difficult to buy enough matching windows to complete one of these new houses, unless you are able to pay exorbitant sums and to WAIT! My brother had been planning to build his new house this spring, was all set, had the prices for materials. He will not be able to build for probably two years because the costs have doubled on materials and the contractor says how difficult it is to get materials at any price.
At one point, Karen, lumber had tripled in price from last year. I think the price has fallen back a bit since then, but it is still much higher than it was last year.
One really notices price inflation if they have been out of the market for a while. I’ve lived overseas for many years, living in employer supplied housing. I’m moving back to the states and had to purchase some major appliances and wow, how much more expensive they are now than when I last purchased them some 15 years ago. Like 50% higher! If you are a long time record keeper (like Len) you’ll notice this on many items.
The wait times for some of those appliances are getting longer too, Frank.
Jefferson wasn’t President in 1790, George Washington was.
You’re right; he was Secretary of State in 1790.